Warren Buffett's performance in his 50 years as CEO of Berkshire Hathaway has been nothing short of amazing.
An investment of $100 in Berkshire shares during 1965 would have turned into a whopping $1,826,163 at the end of 2014, The New York Times reports.
That compares with $11,196 for the S&P 500 index, with dividends reinvested.
But the numbers for the last six years don't look quite so hot. Statistician Salil Mehta gives The Times an interesting breakdown of Berkshire's returns.
During Buffett's first 25 years at the firm, annual returns averaged 30 percent, creaming the S&P 500's 10 percent return. During the final 25 years Berkshire returned 14 percent, compared with 10 percent for the index.
But during the last six years, Berkshire lagged the index: 15 percent to 17 percent. "Warren Buffett has been an extraordinary investor. But he hasn't been doing as well recently," Mehta tells The Times.
And what about the future? Buffett himself advised reining in your expectations. "The numbers have become too big," he wrote in his recent annual letter to shareholders. "I think Berkshire will outperform the average American company, but our advantage, if any, won't be great."
Meanwhile, Buffett's annual letter
for Berkshire Hathaway shareholders contains several important lessons for individual investors, says John Coumarianos, a former equity analyst at Morningstar.
"First, although it seems banal to say, a stock is an ownership unit of a business," Coumarianos writes in an article for MarketWatch
. "The lesson for investors is that a stock represents the value of a business's future earnings. You should own it for that reason, and not because you think you can capitalize on its short-term gyrations."
If you are looking to invest money that you won't need during the next few years, the volatility you must accept by investing in the stock market is less risky to your finances than is sticking with safer investments. "Volatility is not risk," Coumarianos notes. For instance, the CBOE Volatility Index (VIX) has spiked several times since September without derailing the bull market.
"Keep a multi-decade time horizon. Buffett thinks long term. Being able to have a longer time horizon allows you to . . . reap the inflation-beating rewards [stocks] deliver." Buffett is famous for holding on to stocks for decades and enjoying juicy returns as a result.
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